Last year, the FCA set out three proposals for reforming the boundary between advice and guidance: clarifying the advice/guidance boundary, introducing a simplified advice option and establishing a targeted support regime. We now have consultation focusing on the latter related to pension planning.
These proposals are undoubtedly a step in the right direction. But for the financial-advice profession, they carry both opportunities and risks. It is therefore important for the sector to engage with the consultation to ensure we get the right regulatory framework to both help more consumers and allow advice to thrive.
There is an obvious need to provide further support to the millions of auto-enrolled pension savers who are largely unengaged. According to DWP analysis, 12.5 million of the working-age population are under-saving for retirement. The FCA’s retirement income market data also shows that more than 145,000 DC pension plans over £30,000 were withdrawn at likely unsustainable rates of 8% and above.
In a sector with often impenetrable language, we must ensure we are using terms and disclosures that consumers comprehend
The crux of the targeted support proposals would see firms use pre-defined scenarios and customer segments to help people avoid mistakes like these. Where there are reasonable grounds that a ‘ready-made solution’ can offer a better outcome, it can be suggested to a consumer. This ‘better outcome threshold’ and the verification process that is wrapped around it will be key to the proposal’s success.
The regulator sees targeted support as primarily being provided by providers, which could create an opportunity for firms to better support consumers. On the Quilter platform, we recognise that there is more we could do to drive good outcomes for customers who are no longer advised if we were able to offer support that is more relevant to their situation.
Allowing time for consumer testing will be critical. In a sector with often impenetrable language, we must ensure we are using terms and disclosures that consumers comprehend. Currently, our sector already uses terms that appear partway between advice and guidance, such as ‘coaching services’, with mixed understanding of what they entail.
Should advisers fear targeted support? I don’t think so. As proposed, the financial decisions stemming from targeted support would ultimately be made by customers, which would be a clear differentiator compared to the security of fully personalised, regulated advice. Naturally, people taking targeted support will question whether their decisions are sound, which could lead them moving to seek full advice.
The risk is that if consumers believe that financial advice isn’t for them or do not understand the difference it can make, they may be persuaded that a form of guidance could suffice at a lower cost and with the same outcome. That’s why, as an industry, we must engage with the regulator and ensure the value of advice is clearly differentiated.
It is important to remember that when it comes to making complex personal finance decisions, understanding human nature is an important filter. Advisers play a key role in providing an impartial, detached assessment of the realistic assumptions upon which financial projections can be built. Without a truly personal service, this is very difficult to replicate. Our research shows that even the most confident consumers find it challenging to do this themselves.
Perhaps the biggest question for advisers is whether providers will have to contact advised clients for targeted-support recommendations. The current paper suggests the regulator is inclined to encourage contact with advised clients to prompt more detailed conversations with advisers.
This could cause confusion for clients given providers are only likely to hold limited information regarding their situation. It could simply add to advisers’ workloads, requiring them to continually reiterate why they had followed a certain course, resulting in frustration for both them and the client.
I do not think targeted support should be viewed as a threat to traditional financial advice but rather as a complementary tool
However, there are technical issues with saying advised clients should not be contacted. For instance, advice fees are not always visible to a platform if the client pays the adviser directly. Just having an adviser ‘tagged’ against a client record is not enough; if there is no ongoing advice arrangement, then the FCA is probably right that those clients who were originally introduced by an adviser but are not now getting ongoing advice should get targeted-support prompts.
This is a point that clearly needs to be worked through, and we’ll be seeking views from advisers as part of our response. However, overall, I do not think targeted support should be viewed as a threat to traditional financial advice but rather as a complementary tool that should engage more individuals in managing their finances.
By reducing the number of avoidable mistakes made by those without advice, targeted support can enhance overall financial literacy and decision-making. This approach not only benefits consumers but also strengthens the entire industry by ensuring that more people receive the help they need.
A well-implemented targeted support regime should help the financial-services sector better serve its customers and foster a more financially secure society.
Steven Levin is CEO of Quilter
Targeted support can unlock huge benefits but providing affordable advice alongside or after it is a much bigger challenge, from both a regulatory and cost perspective.
Why is everyone making such heavy weather over something which is basically simple?
Advice is where a specific product is recommended and may then be executed on behalf of the client. Guidance only provides generic advice – such as you need an ISA, you need more into your pension, have you considered life assurance? Etc. No specific product is mentioned (EG. Fidelity European Fund) nor is any purchase of a product to take place. A provider can be suggested, provided there is no financial or beneficial element in the suggestion. Both advice and guidance carry a separate fee.
It is best if the guidance and the advice do not come from the same company or organisation.
How hard is that?
Quilter’s heart is certainly in the right place, but I have seen them send 25 pages (printed on both sides) to someone who wishes to withdraw money from their pension. How helpful is that for a client? No wonder people are put off. One of the main problems is that proper advice is far too expensive for most people. It is a worry that cut down versions or a slackening of the regulations will just end up being a rogue’s charter. How do you square the circle? Answers on a postcard please!